LNG tankers change course to Europe as gas storage levels drop

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

Tankers carrying liquefied natural gas are changing course in the Atlantic and heading to Europe, as cargo owners look to profit from a market hit by the loss of Russian pipeline gas flows through Ukraine.

At least seven LNG cargoes departing the US have made sharp turns from their original paths and headed north this month, according to commodities data firm ICIS.

Six ships had been heading towards the Cape of Good Hope and Asia while another was bound for Colombia, but all are now moving towards European ports, the data shows.

Some ships “have made some quite dramatic reversals in their direction”, said Alex Froley, LNG market analyst at ICIS. “It’s unusual to see so many course changes, and so many obvious about-turns.”

The diversions underscore how Europe’s gas supply market is still being reshaped by Russia’s nearly three-war with Ukraine. Russia halted gas flows through Ukraine at the start of the month, while cold weather is depleting European storage at the fastest pace since the 2022 energy crisis.

European prices have remained elevated, owing to the expiry of the Ukraine transit deal in the middle of winter when gas demand is at its highest. Earlier this week TTF futures, the regional benchmark, hit €50, close to their highest levels since October 2023.

The price rises are offering opportunities for bigger profits for companies and traders compared with sending their cargoes to Asia, where demand is lower and prices are depressed.

Sending US LNG cargoes to Europe in January, rather than Asia, would lead to as much as $5.3mn in higher profits per cargo, data firm Spark Commodities estimated.

The diversions are happening “as the profitability of deliveries to north-east Asia remains limited”, said Qasim Afghan, an analyst at Spark Commodities.

The vessels are together carrying about 500,000 tonnes of LNG, according to data provider Kpler. That would amount to about 0.5 per cent of the LNG that the bloc imported last year.

A trader can divert cargoes from its original destination by either paying a fine to cancel the delivery, or can still supply the original customer by sending another cargo. In some cases, cargoes do not have set destinations when leaving a loading port and can decide on their destination midway through their voyage.

Two of the diverted cargoes were now heading for Turkey, according to ICIS. That allowed import terminals there and in Greece to turn the LNG back into gas “then send it onwards through pipeline into south-east Europe, the area most affected by the end of Ukrainian transit flows”.

Europe is increasingly reliant on its ability to attract LNG following the loss of Russian gas through Ukraine, as it depletes its gas in storage. The EU’s gas storage was 59 per cent full as of Monday, 15 per cent below the same time last year, according to Gas Infrastructure Europe, an industry body. Colder weather contributed to a faster withdrawal.

The International Energy Agency predicted this week that lower supplies of Russian pipeline gas would contribute to a 15 per cent rise in Europe’s LNG imports.

“The global gas market balance remains fragile,” the IEA said in a report. While halting Russian gas through Ukraine did not pose an imminent security risk for the EU, “it could increase LNG import requirements and tighten market fundamentals in 2025”, it added.

If storage levels are heavily depleted over the winter, Europe could face higher gas prices in summer to help pay for restocking.

Energy Aspects, a consultancy, expects European gas inventories to fall to 38bn cubic metres by the end of March, about 35 per cent of total storage capacity. It also forecasts that about 35 per cent of the supplies for restocking over the summer will be LNG.

“Any major disruption to global LNG supply or a slow ramp-up of the new export facilities coming online in the US or structural growth in Asian demand could undermine this stock build,” said James Waddell, head of European gas and global LNG at Energy Aspects.